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Philly Newspapers Under Knight-Ridder: By the Numbers

Posted by chanders on August 19, 2008

UPDATE (8/21/2008): I’ve added a second post, “Philly Newspapers Under Knight-Ridder: Beyond the Numbers,” that tries to make the case for the relationship between the Internet, public chain ownership, and the current state of journalism. Prime evidence? Philly.com’s series, “Blackhawk Down,” published online in 1997. The prime culprit? The Real Cities initiative.

I’m starting the next chapter in my dissertation, the one that’s mostly economic. One of my major findings while I was at the Inquirer, Daily News, and Philly.com relates to the “precarity” of most of current journalistic work– what Wikipedia defines as “a condition of existence without predictability or security, affecting material or psychological welfare. The term has been specifically applied to either intermittent work or, more generally, a confluence of intermittent work and precarious existence.” Many employees, both at the Philadelphia newspapers but also obviously bloggers and freelance writers as well, expressed feelings like: how empty their newsrooms were, fears that they could be laid off at any moment, worries that “some guy in Bangkok could do the job that I do.”

One of the things I’m trying to document early on is the actual economic state of the newspaper industry in Philadelphia. The above graphic represents a polynomial trend line of Philly newspaper revenues, circulation, and employment figures, from 1984 until 2005/6 (when the papers were bought by Brian Tierney and Philadelphia Media Holdings). As Microsoft puts it, “a polynomial trend line is a curved line that is used when data fluctuates. It is useful, for example, for analyzing gains and losses over a large data set.”

The above data– which is not that easy to come by– is obtained from two places. The circulation and revenue figures are part of a dataset compiled by researchers at the Columbia Institute for Tele-Information (CITI) for an upcoming book by Prof. Eli Noam, Media Ownership and Concentration in America. The employment numbers are very rough estimates compiled through publicly reported information in major newspapers; for example, when Knight-Ridder cut newspaper staff by 10%. For at least a decade, between 1984 and 1995, I have very few numbers. These numbers are ESTIMATES, at best. They might, in fact, be totally wrong. I want to emphasize that no one at Knight-Ridder or PMH has given me access to any of this data … it’s entirely obtained from outside sources. That’s why I represented the numbers as a trend line, rather than as a strict year-by-year graph. (I obviously scaled the data so it could all be one one graph. A circulation of 400,000 equals, on this chart, a staff of 400). I also want to note that the data only covers Philly newspapers under Knight-Ridder, not under it’s current ownership (though there’s plenty of bad news there, too).

That said, the numbers are obtained from documentary sources, and I’ll stand behind them until I hear otherwise. What does this show? A few broad trends are pretty obvious. First, employment at the Inquirer boomed throughout the 1980s and 1990s (hard on the death of the afternoon daily the Philadelphia Bulletin) even as circulation numbers began a slow decline. Then, in 2000, employment began to plummet (in 8 years, the newsroom at the Inky was half the size it was in 2000). Circulation and employment numbers at the Daily News, on the other hand, saw more of a gradual but steady decrease throught this time period, until they stabilized in 2005/6.

Revenues, on the other hand, tell a different story. It’s pretty clear that, throughout the course of this dataset, profit margins at PNI (the name for the Philly subdivision under Knight-Ridder) were anywhere between 9% (in 1995) and as high as the upper teens to low 20%’s by the early 2000’s. So … even while circulation and staff were dropping, and even as the challenge posed by the world wide web loomed on the horizon, profits got bigger and bigger. This, to me, is the real tragedy of public chain ownership of local newspapers in the 1990’s. Not the decline in journalistic quality, which was arguably real (to a degree) or the effects of media concentration (whose ultimate effects are still unclear), but a failure to plan ahead and prepare for a Internet future that a lot of people knew was coming. They were so focused on the quarterly bottom line that they failed to realize that the long-term bottom line was where they were really at risk. The choice wouldn’t be between 9% and 29% proift margins, but would be between profits and no profits at all.

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15 Responses to “Philly Newspapers Under Knight-Ridder: By the Numbers”

Found this via Jay Rosen’s Twitter post. I think the effect you’re seeing (excessive profits coupled with downsizing) is not isolated in the news industry; newspaper dailies were (still are to some degree), in effect, mini-monopolies.

It would be interesting to see what was done with those profits. What were stock values and quarterly returns? What was going on in the economy as a whole? Were these profit levels “the norm” on WallStreet or deviant? Or did the money go mainly to corporate officers?

I’m still trying to understand how 9% profit became “low” and then what happened to make 20% “not enough.” How much of this short-term greed can be laid at the feet of the Reagan legacy?

Almost always, mature companies fail to recognize the challenges presented by evolving competition, the new kid on the block. (And newspapers are extremely “mature” organizations.) Then their first action is usually defensive – block the kid using monopoly power, legislation, the courts, etc. Finally, capitulation or some sort of cohabitation/co-opting.

Finally, the Noam book, as described at Amazon, sounds like a direct challenge to conclusions in New Media Monopoly by Bagdikian.

Jim Romeneskosaid

1. Quick question: can you give us a bit more on how CITI made its revenue estimates? Knight Ridder never broke out financial results for individual papers, so unless CITI researchers got access to internal company documents, I’m wondering how they were able to parse the numbers.

2. Here’s an interesting conundrum: though Knight Ridder was fabled for cutting back its news hole and reporting budgets to prop up its profit margin, the company also was notably early in attempting to size up the internet. A decade or so ago, some of its papers were trying to set up their sites as community portals. And KR was a major force behind several enterprising ideas to amass classified ads online. Did they not push these strategies aggressively enough? Were they timid because they were being hammered every quarter by Wall Street analysts and investors? Or were these strategies simply a bunch of hot air, designed to make it seem like the company wasn’t moribund?

A Casselsaid

Yes, its a tragedy that KR didn’t anticipate the damage the Internet would do to the newspaper’s business model, but when exactly was this realization supposed to dawn? In 1995, when profit margins by your account were 9%, there was no commercial Internet to speak of. By the early 2000s we all knew the net was changing things, but hey — newspaper profit margins had gone up! To 20%! What incentive was there to scrap such a profitable business for a model that nobody really understood (and that few still really understand today, I’d argue)?

KR’s managers were hardly geniuses, but blaming them for the disaster that’s overtaken their former empire is like blaming the lifeguards on Sri Lankan beaches for the tsunami deaths. What happened was, and is, bigger than all of us.

AWsaid

It would be interesting to also see a trend line of Knight-Ridder stock prices during this period, given that Wall Street tends to view newsroom slash-and-burns as a good thing. My recollection as a former PNI employee is that the price per share rose steadily from the mid-$40s in the mid-1990s to a high of about $75 in the late ’90s, which prompted a 2-for-1 stock split, after which shares rose again into the $60s and stayed there until K-R’s demise. I believe the company was sold to McClatchy for about $67 a share.

PaulBsaid

Your argument that the decline of the Philadelphia newspapers was due in large part to chain ownership is unconvincing. There are enough non-chain newspapers out there (Washington DC, St Petersburg, Buffalo come to mind)that would make it possible to analyze if being part of a major chain affected financial performance during the past few years.

It is depressing when journalists trot out the argument that if only the publishers had spent more money on their product, none of the terrible times would have happened. If reporters are unable or unwilling to look honestly at their own industry, why should readers trust their analysis of subjects with which they have far less familiarity?

That’s an interesting analysis.
No question Tony Ridder and his crew drove the company into the ground with dumb, selfish, and seemingly inconsistent and contrary business investment decisions, e.g. the expensive move to San Jose to be closer to the Internet so Ridder could invest company money in online grocery services and other disasters.
Ridder could well argue that other media also lacked the vision and courage to sacrifice the old business model for useful investment in regional and national news franchises. In retrospect he starts to look smart for not selling out any later than he did.
Would be interesting to see an analysis of capital investment and dividends thru this period. All the money they pissed away (and paid themselves!) Would we know what to do with it now?

ScottCsaid

Are the revenue and circulation numbers adjusted for inflation and household growth?The CPI for 2006 was roughly double what it was in 1984. It’s reasonble to assume salaries, newsprint and other expenses roughly kept pace. Thus the roughl 5% revenue increase indicted on the chart ($300 mn to $420mn) would represent a 30% decline in constant dollars. The ’80s and ’90s saw a significant shift in retailing from local to regional and national chains that resulted in a significant reduction in the number of advertisers.Population growth in metro markets means peanetration dropped more dramatically than the raw numbers indicate.It could be argued that newspapers’ business model has been in trouble for years. Thus a steady decline in staffing may reflect recognition of reality more than corporate greed.

Chrissaid

A couple responses: Kegill, yes, I think there’s an aspect of Reganomics (also known as neo-liberalism) to all of this, though it is a complicated subject that is currently beyond the scope of this blog (though I may come back to it later.)

Rn — good question, I’m currently trying to track more information down on the exact methodology used to calculate revenues. I know K-R didn’t publicly break these numbers out, so I’ll keep you posted. I also think, Rn, that Knight-Ridder Digital (and the top-down management practices it brought with it in 2001/2) have turned out to be, in hindsight, a disaster.

Scott– I’ve got the adjusted numbers for household growth on me, though I didn’t include that data here. My recollection, though, was that the adjustment didn’t change the basic equation terribly much. And your other question about inflation and revenues can be answered if I get more information on how the revenue figures we calculated. The bottom line, though, was that in October 2000 the New York Times wrote this:

“By almost any business measure, the Knight Ridder newspapers in Philadelphia would be deemed a success. Since 1995, profit margins at The Philadelphia Inquirer and The Philadelphia Daily News have more than doubled, reaching close to 19 percent after years of single-digit doldrums. Good? Absolutely. Good enough? Not for long. For 2001, the target margin is 21 percent. And now there is talk about 5 percent budget cuts at the papers, if not more. Anxiety is as plentiful as oxygen in The Inquirer’s newsroom.”

Boldersaid

Like a number of other posters here, I was at PNI during the 90’s and 00s. I clearly recall the desperation under K-R to increase profit margins every quarter. (and I was a manager for another K-R paper, with profit margins near 30% yet under the same pressure, so I know of what I speak.)

For those who say chain ownership wasn’t the cause, I say boo to you. Tony Ridder ran that company into the ground, and yes, the move to San Jose was the start of a slippery slope.

Garbanzosaid

The drive for profits and the rise of the Internet are two separate issues. Looking back on the 90s (and I was with KRI for ten years at another paper, as well as having been hired into their corporate general mgt training program), KRI was pushing its papers to have profit margins comparable to other chains (mainly, Gannett). There were some major laggards — Philadelphia key among them — but that was due mainly to unions, as the most profitable KRI papers were nonunionized (except for San Jose, which was riding the Web 1.0 bubble).

As for the new media thing, KRI had the New Media Lab (Center) in Boulder since the early 1990s, but they deemed that too esoteric (it was) and moved it to San Jose and gave it a more practical bent. Mind you, this was still the mid-90s, when many newspapers were getting their head around the Internet. Philly.com was an online leader in the industry early on. I think they lost that leadership around 2000/01. Could they have invested more heavily in the internet? Sure. But I think it’s safe to say they had adequate levels of investment for quite a awhile, and being more effective online would have required a culture change that few newspapers (probably only NYT, Boston, and maybe Washington) have been successful at.

Finally, I remember Jim Batten stepping down in 1995 (and later passing away) as the demarcation between the old days and the new, crappy days. I had no confidence in Tony Ridder’s management style, and he ran the company like there were two classes of stock, even though the familial ownership of KRI was in the low single digits (a bit higher later on, as he amassed more stock through grants). He appointed his not-particularly talented brother and son publishers of key properties, moved the company to San Jose for no particular reason (although, admittedly, Miami was a bit out of the way and a third world country in the 90s), and was generally not competent to run a major corporation. He started the company on the road to centralized services, but didn’t have the balls to remove local publishers’ autonomy in other areas that probably would have meant better margin performance without deinvesting in the core product.

Dunno, can we look back at any newspaper CEO during that era and say they did the right thing (even Don Graham and Pinch Sulzberger)? As some have suggested, perhaps even the best captain couldn’t have saved the Titanic. I’d suggest that the wisest company during this period was Thomson, which sold its newspapers entirely.

excalibursaid

I find it sad that you put all the blame on K-R (and it does deserve a goodly share) and conveniently ignore the impact of unreasonable union demands, especially in some of the major cities where K-R foundered. In Philly alone, those same journalists you cherish so much were like screaming vultures every time contract talks arrived, unwilling to be prudent or cooperative and emboldened by the even more brazen demands of our “friends” the Teamsters. I wish we could see analysis that was a lot more balanced in its presentation. There are no white hats in this sorry saga of newspaper decline. Journalists and their arrogance and refusal to heed what readers wanted and instead ran over readers in a wild dash for prizes are no less to blame than Tony Ridder for Philadelphia’s miseries.

Kip Cassinosaid

Before you go too much further, you should read “Red Sky at Morning” — a monograph published in 1994 which foresaw what was happening to the newspaper industry with great clarity. It was issued as required reading at API courses. They may still have a copy laying around.
It is hard to point blame for what has happened to Philadelphia Newspapers in any one direction. Bad labor deals were certainly part of the mix, as was management that failed to understand and cope with competition from a growing number of suburban papers.
I believe one of the primary factors was the drive to improve margins, which climbed dramatically through the ’90’s. Based on the belief that big margins were the industry’s “only story” for the investment community, the drive to achieve 15 percent, then 20 percent margins forced cuts in resources even when times were good. By the time the bad days came, there was nothing left to cut but muscle and bone.
The rise in margins was closely correlated to the fall in circulation — in Philly and at other big metro papers. The sad fact is that when margins weren’t quite where they had to be, the easiest way to correct the problem was to lose a little circ. A few less papers printed meant less costs all around. At the time, no one was seriously looking at declines in circulation, which anyhow were (partially) masked by readership estimates. Most advertisers — even the bigger ones — could not even guess at circulation, and those who did were often wildly wrong. There were few corporate penalties for losing readers, certainly nowhere near those imposed if ad sales dropped or margin targets weren’t reached. I believe that if the penalties for loss of circulation had been stiffer, readership in Philly and other bigger metro markets would not have suffered nearly as much as it did.
Another important culprit may be the concept of newspaper chains in general. Chain ownership reached its apex in the ’90’s, with KR and Tribune vying for the number two spot among a number of large newspaper businesses. But newspapers aren’t like retailers. The anonymity of management and the overlordship of financial goals doesn’t translate well into a business that is linked to its community in a way few others are. Chain management brought corporate goals, which might or might not make sense in an individual place. Even though they were large businesses, none of the chains had the power to coerce a major advertiser — since none reached enough of the nation’s readers, even at their height. In the end, chain ownership took much and gave back very little, which is why these dinosaurs are dissolving a little more each day.